The correct option is C. face value. Explanation of the Correct Answer

1. Definition of Face Value: The face value of a share, also known as par value, is the nominal or stated value of the share as specified in the company's Memorandum of Association and on the share certificate. This value is the minimum price at which shares can be issued and is often set at a round number, such as $1, $5, or $10.
2. Importance of Face Value: The face value is significant because it represents the legal capital of the company. It is the amount that shareholders are required to pay for their shares when they are first issued. This value does not change over time, regardless of the market price of the shares, which can fluctuate based on supply and demand.
3. Legal Implications: The face value is important for legal and accounting purposes. It helps in determining the amount of capital that a company has raised from its shareholders. For example, if a company issues 1,000 shares with a face value of $10, it has raised $10,000 in capital.

Why Other Options Are Incorrect

• A. Discounted Value: This term refers to the present value of future cash flows, discounted at a specific rate. It is not related to the nominal value of shares. Discounted value is more relevant in financial analysis and valuation rather than in the context of share capital.
• B. Stock Value: This term is often used to refer to the market value of a company's shares, which can fluctuate based on market conditions. Stock value is not fixed and does not represent the nominal value of shares as stated in the Memorandum of Association.
• D. Par Value: While "par value" is often used interchangeably with "face value," in this context, the question specifically asks for the term as it is stated in the Memorandum of Association and share certificate. The term "face value" is more commonly used in this context, making it the more appropriate answer.

Summary of Key Points

• Face Value: The nominal value of a share as stated in the Memorandum of Association and share certificate.
• Legal Capital: Represents the minimum amount shareholders must pay for their shares.
• Market Value vs. Face Value: Market value can fluctuate, while face value remains constant.
• Terminology: "Face value" is the preferred term in this context, even though "par value" is often used interchangeably.

By understanding these concepts, students can better grasp the significance of share values in corporate finance and the implications for shareholders and companies alike.